Vertical Mergers Likely to Lead Next Round of Industry Consolidation

Virtually everyone expects a serious round of U.S. industry consolidation, in 2017, in the mobile, content and content distribution markets. Sprint, T-Mobile US and Dish Network are among firms usually mentioned as potential actors (either as buyers or sellers). Comcast, Altice and Charter Communications also often as seen as potential players.
Up to this point, most industry mergers have been of the “horizontal” variety, intended to provide additional scale. But that strategy has nearly run its course. At some point, antitrust concerns prevent further scale of that sort.
There is an equally-important consideration.
Some would argue the more-important mergers are of the vertical variety that move access providers up the value stack into content, applications, transactions or advertising. Scale helps with costs and gross revenue.
But scale does not help a participant escape a lower-value role in the ecosystem.
Other than Comcast, only AT&T has made major moves in that regard. So th…

In Special Access Markets, Competition Exists, and Has Worked

Competition works. Over the last decade, cable  operators and independent business access specialists have dramatically changed market share in the special access (business data services) business, even if new services sold by cable operators are not, in some ways, identical substitute products.
To be sure, in the monopoly era, incumbent telcos were dominant providers of special access services, holding 92 percent of the market for special access services in 1980, for example. All that has changed.
The total market for special access services, roughly $40 billion annually, according to the Federal Communications Commission, now has non-telco providers holding about 61 percent market share (a bit less after CenturyLink’s acquisition of Level 3 Communications).
Time division multiplex (T1 and DS3) services accounted for roughly $25 billion of the total market in 2013, of which incumbent telcos accounted for about $16 billion.
In other words, telcos held about 39 percent of the total spec…

Verizon "Very Confident" in Spectrum Position

Most informed observers outside of Verizon believe it will have to boost its spectrum assets. But Verizon continues to insist it is “very confident” with its present and potential spectrum assets, according to Matt Ellis, Verizon CFO. “We have significant opportunities to continue to grow within the spectrum holdings that we currently have; we’re refarming spectrum as we've talked about for a while; we still have the AWS-3 spectrum; and then unlicensed,” said Ellis.
It is not an unrealistic position. Even if, historically, gaining new spectrum has been the main way mobile operators have added new capacity, using smaller cells is the other typical way additional gains have been achieved. With the fiber deep architectures Verizon is pioneering in Boston, it is creating the backhaul infrastructure to do just that: add small cells to reuse existing capacity.
So, in terms of the physical options, Verizon does not absolutely need more spectrum to add more capacity. On the other hand, ther…

AT&T Adds Gigabit Service in Eight More Metro Areas

AT&T plans to add eight more metro areas to its AT&T Fiber service, reaching at least 75 major metros with the fiber-to-home, gigabit per second service.
AT&T now markets gigabit connections to 4.6 million locations across 52 major metros. AT&T expects to add two million locations in 2017, and plans to reach at least 12.5 million locations by mid-2019.
Some critics will point out that the deployment is neighborhood by neighborhood, and not a “ubiquitous” deployment. That is a simple case of selling gigabit connections where there is enough demand to warrant the investment. Even Google Fiber, which did build in the same way, found insufficient demand to continue. AT&T expects its deployments to be sustainable.
Some observers characterize AT&T fixed network investment plans as “running away” from that business. Some of us would disagree. AT&T, it is undoubtedly true, will not drive most of its future revenue growth from its U.S. fixed network. That will tend t…

In U.S. Market, Internet Access is Broadband; Phones are Smartphones

In many markets these days, there is very little functional difference between “internet access” and “broadbamd internet access,” as there is very little distinction between a “mobile phone” and a “smartphone.”
In the case of internet access, though, there is one important observation to be made, namely that buying of fixed internet access seems to have passed its peak, as mobile broadband continues to grow, suggesting there is product substitution going on.
For those of you who live in a developed market, when was the last time you met anybody who uses a dial-up connection to the internet? For most of us, the answer is that we cannot remember the last time we saw anybody using a dial-up connection, or actually know somebody who buys such a connection. source: Pew Research Center,  source: Pew Research Center data source: Pew Research Center
source: Pew Research Center
Smartphone Sales (Percent of Total, 4Q 2016) China 96 India

"What if Computing and Communications were Free?" Still Are Key Questions to Ask

Though it is not something anybody really thinks about on a daily and routine basis, virtually every business, in every industry now operates in a context where “computing and communications are nearly free.”
Even if it is not yet true everywhere on the planet, for everyone, computing and communications are shaped by Moore’s Law, which means those products and capabilities ultimately will be so affordable people do not have to worry about using the tools.
That is a good thing, in a broad sense, if often challenging for suppliers of computers and other computing devices; as well as suppliers of communications services. Bill Gates and Reed Hastings, though, are among the executives who correctly figured out how to leverage those trends.
For Gates, the insight that free computing would be a reality meant he should build his business on software used by computers.
source: Deloitte University Press
Reed Hastings came to the same conclusion as he looked at bandwidth trends in …

Nothing is Going to Prevent Internet Access Prices From Falling

It is helpful to remember some historical facts whenever a regulatory policy is changed in a way that critics argue “will lead to higher prices.”

And that lesson is that internet access prices decline over time. That seems to be the case for fixed or mobile internet access, and certainly has been true for transport prices. Sometimes observers focus only on retail prices, not consumption. That is important, as users tend to consume more data over time, buying tiers of service that are faster, and often have higher retail prices.  

In other words, in addition to retail price declines, quality of service keeps improving (looking only at speed) while volumes consumed keep climbing as well. So cost per megabyte or cost per gigabyte matter. Now is it crazy to argue that prices are going to fall further, as much more supply, and more-efficient platforms are introduced.

Such price changes are clear in both consumer and business realms, as well. Consider T1 prices, DS3 prices or Ethernet prices.…